Today, individuals, such as parents, do not have an easy and seamless process to manage and dispense money to their dependents. Besides managing and controlling their dependents spending activities, safety in dependents carrying large amounts of cash may be a concern for parents.
Dependents are increasingly purchasing goods and services on-line where they cannot use cash but need a payment card. Since they may not have their own direct deposit account (DDA) or credit card account, they cannot use traditional methods of payment for this channel to purchase goods. At the physical point of service (POS), dependents generally use cash to make their purchases, which excludes financial entities from the payment transactions and associated revenues. In addition, merchants that sell digital media, e.g., music, movies, videos, etc., do not have a low cost micropayment solution.
Today, individuals and dependents may attain prepaid cards to use towards on-line purchases or physical retailers. Another alternative is using a parent's credit card where there are no controls on dependents spending activities. For physical retailers, the majority of purchases by dependents is made using cash or “additional” credit cards. Credit cards issued by competitors and cash as payment instruments remove financial entities from payments revenue.
ECommerce merchants whose business requires micropayments are currently dependent on credit/debit card transactions for payment. These companies are looking for processes that reduce their payment expense.
In addition, individuals may want to budget their resources across different financial needs. For example, a family may decide that a monthly income of $2000 may need to be budgeted for known and other expenses. The family may decide to restrict use of the monthly income to only $100 for gas, $100 a month for clothing items, $100 a month for entertainment items/services, and $200 a month for food items/services. In such a case, the family must maintain detailed records of who is spending what, where, when, and under what category.
A financial entity currently allows its customers to make payments to other financial entity customers through its online banking service. In order to make a payment, the sender has to ask receiver to provide their bank account number and zip code. The receiver needs to share this confidential account information in order to be able to get a payment. In addition, both the sender and receiver need to be customers of the financial entity. It is not possible for financial entity customers to send payments to anyone outside the financial entity or make payments to merchants directly from their bank accounts.
Person to person and person to merchant payments are not unique. There are number of companies that allow their customers to make payments using a stored value card or a pooled account. The stored value card or a pooled account is like a prepaid or a gift card and it exists separately from customer's bank accounts. The customer has to move money into this account through automated clearing house (ACH) transfer or credit card cash advance before these can be used to make payments. It typically takes 2-3 business days to move money into such accounts.
There are currently no practical and cost-effective systems that can provide a seamless integration of a master DDA, one or more sub-accounts, and merchant client accounts.